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10 tips for getting out of debt

Getting into unsustainable debt is frighteningly easy - a few months of irresponsible spending can land you with a debt of tens of thousands that could take years to pay back.

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Many people experience problems with debt at some point in their lives, and it can be very stressful if you are constantly worrying about money. However, it is possible to get your finances back under control with a number of simple steps.

Here are our ten tips for getting out of debt and staying debt-free.

1.   Write down all your debts and how much they are costing you

This is the first step but the most important one because it is the moment when you take back control of your money. It may be that you have put off thinking about the cost of your debt because it is too scary to tackle.

By writing out a list of your debts and the interest you are paying on them, you can decide which is the most important or expensive form of debt and take action to sort it out.

Many people borrow money without thinking about how to pay it back, so if you are in a difficult debt situation you are far from alone. Rather than feeling frightened, think of this as the beginning of your debt rescue plan.

2.   Prioritise the most expensive or important debts and pay them back first

If you have multiple debts, it is essential that you prioritise them correctly. The most important debts might not even be the biggest, but they are the ones that you will need to pay off first.

Some bills like council tax, rent or mortgage and utility bills need to be prioritised so that you continue to receive essential services and have a roof over your head.

Once you have covered these important household bills, next think about the most expensive debts – the ones with the highest rate of interest – and try to start paying off some of them. You can do this by looking at your outgoings and finding ways to economise.

3.   Establish a spending plan

Everyone's spending plan will differ depending on their exact circumstances, but the first step is to know how much disposable income you have leftover after your essential monthly expenses.

Look at your income and outgoings and see where you could economise. Could you cut down on morning coffee or gym membership for a while? Small amounts paid out regularly can quickly mount up. Shop around for more competitive deals on mobile phone contracts, utility bills and home insurance – you could save hundreds of pounds a year in the process.

There are many small ways to save money, but some of the most effective include turning down your thermostat, upgrading to energy-efficient light bulbs and appliances, and not leaving things on standby.

4.   Seek help if you can no longer cope with your debts

There are a number of debt charities that offer free advice and counselling. You should not have to pay for debt advice, so avoid companies who want to charge you.

They include StepChange Debt Charity, National Debtline and the Citizens Advice Bureau.  

If your debt is complicated you may need to turn to a formal debt management plan. Debt management plans are typically negotiated by a third party such as a credit advice agency, and they serve to agree on a debt repayment plan between you (the debtor) and your creditor. A debt charity can give you advice on this.

5. Consolidate and transfer your debts

Taking out yet another loan to deal with your debts might sound counter-intuitive, but by consolidating all of your debts into one lump sum and transferring them all to a single credit card or other loan may be an option, provided that you do so responsibly.

If you have a reasonable credit score, you should be able to sign up for a credit card that offers 0% interest on balance transfers. This way, you won't have to pay any interest on your debts for a period of time, provided that you pay everything off within the given time frame.

But you will be charged a fee to do this and if you don't pay off your debts within the 0% period, the total amount you owe will increase.

6.   Reduce the number of credit cards you hold

As soon as you have consolidated and transferred all of your debts onto a balance transfer credit card, it is a good idea to cancel any other credit cards that you have, provided that their balance is now at zero.

By getting rid of your credit cards, it should be easier to avoid impulse spending and borrowing more money in the future, and you will save on interest fees. This will improve your credit rating because if you have a single credit card that you pay off regularly and on time, it will look better than if you have a lot of cards that are constantly maxed out. Having a better credit rating is also likely to lower the interest rate you will pay on credit cards and loan agreements, because you are seen as a lower risk customer.

7.    Use money apps

Using your smartphone to manage your money, keep track of your spending and get started in the savings habit can be a powerful way of taking back control of your money. It can help reduce impulse buying, which is the greatest enemy of anyone's personal finances and nudge you into making small savings.

Monzo has developed from being a pre-paid debit card to a mobile bank account that helps you manage your money from your phone. Moneyhub lets you see all your accounts in one place while Money Dashboard is an online personal finance management tool you can use on your phone.

These apps make saving for a rainy day fund simpler and more accessible. They also enable you to keep track of your finances 24/7.

8. Build up an emergency fund

Debt can quickly spiral out of control to the point that there's no more money available left to borrow when it comes to paying an unforeseen bill.

However, instead of relying on a credit card of bank account overdraft, start saving up right away in preparation for any eventuality. Apps like Chip and Plum allow you to sweep bits of spare cash in your current account and move them over to your savings account with a click of your phone. You will be pleasantly surprised how regularly small amounts of savings can grow into a reasonable next egg over time.

9.   Generate some extra income

Increasing your income is challenging but could be an option. Even a very modest increase in your income might help.

If doing a few extra hours in your day job isn't an option, you could consider a part-time weekend or evening job. Though this obviously isn't for everyone, but if done over a short-term period it could be a quick way to pay off your debts.

10. Sell your unwanted possessions

You might be surprised by just how many things you have hidden away in the attic, basement or storage room that you no longer use any more.

Often a great way to make a bit of extra cash, cleaning out your home in search of things to sell is one of the first things that anyone finding themselves in a state of financial limbo should do.

Don't ignore the little things either, such as old baby clothes and toys, magazine collections or old clothes: everything mounts up. Take it all to a car boot sale or start listing things on eBay.

If you have clothes in good condition you can sell them on popular sites such as Vinted or Depop. This is a good place for stylish vintage clothing, handmade clothes and jewellery, or second-hand designer clothes and accessories.